A MARKET UPDATE for June / July 2007

TCC periodically posts video “snapshots” regarding critical markets and economic updates on our web site. We welcome your viewing them and will appreciate your feedback.

We appreciate your taking the time to review this newsletter. We welcome your comments as well as contributions regarding our readers’ company/industry activities. Please send them to Bob Beavins at bob@thechemco.com

Critical Raw Materials Markets

Oil Price: ~$68.80/bbl.
Natural Gas: Current spot prices average $7.39/MMBtu, down 21 cents; July contracts settled at $7.391/MMBtu.
Benzene: Trading at $4.00/gallon
Propylene: US contracts for June were down $0.0225/lb from May at $0.4975/lb
Orthoxylene: June contracts advanced $0.015 to $0.54/lb.

Chemicals Markets

Methanol: Pricing declines into July with Methanex announcing an $.08/ gal decrease on MNDRP to US$.93/ gallon and Southern announcing a $.04/ gallon decrease to US$.91/ gallon. Inventories remain healthy and the overall market is considered long. Europe settles down as well with their respective translating into us gallons at US$.89/ gal.

It has just been confirmed that Southern Chemical Co. has acquired Southern Garrett.

Urea: Prices stabilize as International Urea Market softens. On the other hand product is not as available as most would like- some noting that product is a “good deal” if you can find it. Urea spot barges are in the $318- $322/ ton range as of the week of June 25th.

Adipic Acid: US price increase of $0.03/lb July 1. Prices in the far east fall below $2,000/ ton for the first time in 14 months.

Ammonium Nitrate/Ammonia/Nitric Acid: Prices considered stable on decent demand.

Plasticizers: July increases of $.03- $.07/ lb. have been announced for phthalates, trimellitates and adipates as well as linears. Plasticizers and plasticizer alcohols remain extremely tight worldwide and cost pressures continue. It is rumored that BASF in Europe is considering further increases in August in the range of 100 euros per metric ton, which would equate to US$0.06/lb. Stay tunes for further increase in North America as well. Mexican DINP producer rumored to have continued problems with alcohol supply creating major supply issues there.

A fire on June 18 at the Proviron phthalic anhydride plant in Oosrede, Belgium has temporarily removed 2.2 billion pounds of capacity from an already tight European market. Since there was a death during the fire, this outage could be of considerable length, further putting pressure on PA pricing in Europe and could mean a ripple effect in the US.

TCC Plasticizers available:
TOTM
DOA
ChemFlexx 206 Linear Phthalate Plasticizer
DOP
DINP — Limited availability, with worldwide tight supply.
Brominated DOP
Unavailable / Allocated Plasticers
8 10 Trimellitate
DBP

Dicyandiamide: Prices on the increase with the pending reversal of the tax rebates to Chinese manufacturers and exporters.

Dicyclopentadiene: Price increase announced by one major producer July of US$.07/ lb.

Fumaric Acid: Stable market; imports available.

Isophthalic Acid: Unprecedented Tightness. Material almost unavailable unless a contract is in place. Spot material being sold in excess of US$2.50/ lb. No relief in site.

Maleic Anhydride: Some firming in price as Butane escalates.

Phthalic Anhydride: Increase into July of US$.015/ lb. US production and demand is good but global production issues becoming a major concern.

Styrene monomer: Pricing reaching the mid $.70’s as Benzene marched its way up over the last couple of months. For more detailed information check out our comprehensive Styrene Monomer Report at https://thechemco.com

For more information on these or any of the products and services provided by TCC please contact Robb Roach directly at Robb@thechemco.com or go to our web site at thechemco.com

Chemical Industry News

The chemical industry is awaiting an official announcement from the Chinese government regarding the cutting of tax rebates to Chinese chemical manufacturers and exporters. The Chinese government is confronted with environmental issues and increasing pressure to reduce its trade surplus. It is forecast that the tax rebates will be lowered from 11 – 13% to 0 – 5%. The announcement is expected on or about July 1. Importers predict that prices will increase commensurately.

Shipping delays from China are becoming a problem due to a container shortage.

The Registration, Evaluation, and Authorization of Chemicals program is in place as of June 1 in the EU. There is an 18 month time period for the registration of approximately 30,000 products. The new European CHemicals Agency, based in Helsinki, Finland will be the controlling agency. Its initial budget for the remainder of this year is 15 million euros/$20 millions. Various major European chemical manufacturers have increased support staff in order to comply. The belief within the EU is that these regulations will encourage development of safer alternative products.

The sale of the GE Plastics division to SABIC for $11.6 billions has been completed. It has been reported that a premium of $1.6 billion was paid by SABIC, which now has a large and firm base in the US. It is considered the world’s largest chemical company by market capitalization.

Investment firm Spell Capital Partners LLC recently made its third plastic materials investment in the past eighteen months by acquiring Prime PVC for an undisclosed amount. This purchase gives Spell Capital control of six plastics firms in a nine company portfolio. Total annual sales are estimated to be in excess of $1 billion.

Olin recently announced agreement to purchase Pioneer Companies for $411 millions, making Olin the number three chlor-alkali and number one industrial bleach manufacturer in North America. This acquisition will rank Olin behind Dow and Occidental Chemical in chlor-alkali production.

Akzo Nobel has been unsuccessful in its attempt to take over ICI. The total price reported was approximately 11 billion euros.

On July 16, a new global magazine entitled ICIS Chemical Business will make its first appearance. This publication will combine ICIS Chemical Business Americas and ICIS Chemical Business (Europe, Middle East, and Asia edition.) It will be based in New York and led by global editor Joseph Chang.

Perstorp has opened Scandinavia’s largest biodiesel plant in Stenungsund, Sweden. The renewable biofuel is rapeseed methyl ester and can be blended with diesel or replace it.

Virgin Atlantic Airways has announced that it will test biofuels next year. This is part of an effort to reduce carbon emissions and increase efficiency of its aircraft.

Reports questioning the current corn to ethanol drive are starting to appear stating that producers expect food costs to rise, there will be strain on the agricultural infrastructure, and it requires a lot of fossil fuel to convert biomass into ethanol. The oil industry has stated that the biofuels push is a disincentive to expansion of refineries. At the same time, it’s predicted that Congress will increase the amount of ethanol refiners must incorporate into fuel mixtures.

Homeland Security Secretary Michael Chernoff recently said that offshore and onshore oil and gas production facilities along the Gulf Coast have built in a greater degree of resiliency since the devastating hurricane season of 2005. This year’s hurricane season is predicted to be above normal, however.

The US Senate recently rejected a proposal to give Virginia the right to drill offshore for natural gas. Senator Warner’s amendment to the energy bill would have allowed drilling for gas only, not oil, in waters at least 50 miles from shore. Price of natural gas has been increasing since 2000, while domestic production has been flat.

The American Chemistry Council will continue to press for more access to abundant US offshore gas reserves, citing feedstock and fuel demands as well as limited availability.

Coal gasification is receiving increased interest from government and industry as a method of alternative fuel production. At present, Eastman is the only North American chemical company using coal as a feedstock for a number of products. The Department of Energy projects that US coal production could increase 65% by 2030. Worldwide, there are approximately 900 billion tons of coal reserves, of which 250 billion are in the US. US natural gas reserves are estimated at 7.7 billion tons, and oil reserves at 6.4 billion tons.

Electricity demand is expected to increase in the US by about 40% by 2030.

Continuing droughts are foreseen, especially in the South and West. It’s expected that demand for water recycling facilities will increase sharply. Sales of equipment for filtration and treatment will rise 15% per year from a base of $1.8 billions.

The European Union looks to be a long way from keeping the promises that it made under the Kyoto Protocol for reducing greenhouse gases. EU Environmental Commissioner Stavros Dimas said that reductions are only 2 percent below the 1990 level.

It has been forecasted that LTL trucking rates will drop in the second half of 2007 as a result of increasing competition. Diesel fuel price is now 42 cents/gallon higher than the year’s low of $2.413/gallon.

The Economy

THE DOW JONES INDUSTRIAL AVERAGE CONTINUES ABOVE THE 1300 MARK.

Housing starts are expected to total 1.35 million in 2007, well under the 2005 peak of 2.07 million. Forecast for 2008 is 1.5 million, a modest increase. Mortgage rates now average 6.7%, up from 6.1% a month ago.

New orders for durable goods decreased to $213 billion, or a decrease of 2.8%, in May, following three consecutive monthly increases. Excluding transportation, new orders decreased 1.0%.

Consumer Price Index increased 0.6% in May. The May level was 2.7% higher than May, 2006.

Interest rates: Prime at 8.25%.

Inflation: Currently 2.7%; average 3.0% in 2007.

Unemployment: Continued 4.5% in 2007.

Trade Deficit: Decreased to $58.5 billions in April from $62.4 billions in March.

Crude Oil: Rose more than $1/bbl in late June after an Energy Department report showed an unexpected decline of 479,000 bbls.in US gasoline inventories.

Overall industrial production for May was 1.6% above its year-earlier level.

Economists predict average 2.3% GDP growth in 2007, continuing at less than 3% into 2008.

The US dollar trading at 122.4 yen, $1.344 vs the euro. The British pound sterling continues at ~$2.00 vs the US dollar.

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